Philippines eyeing sukuk, floaters as budget deficit swells

MANILA • The Philippines is seeking a wider source of financing as the budget deficit swells and funds get increasingly expensive.

The Bureau of the Treasury is looking to revive the sale of floating-rate notes next year and debut inflation-linked debt and sukuk bonds, Treasurer Rosalia de Leon (picture) said in an interview last Wednesday.

The government is also looking to sell dollar-denominated bonds as early as this quarter, and will likely return to the yuan, yen and euro bond markets in 2019, she said.

“There are a lot of things that we’ll be very active in, not only in terms of funding, but also in terms of working on the next wave of capital-market initiatives,” de Leon said. “This is really more about diversification in terms of products and also in investor base.”

The last time the Philippines offered floating debt in the domestic market was in 1995. The government is under pressure to expand its borrowing channels as interest rates at home and abroad climb, while the budget deficit is set to bust the annual limit for the first time since 2009.

The sale of inflation-linked and sukuk bonds may finally take off after the government implements a new securities registry system and enacts a bill on Islamic banks approved by the House of Representatives this week, de Leon said last Wednesday. The Treasury is discussing with banks on the benchmark for floaters, she said.

“Locally, they are still in consultation with the market whether or not these instruments will be viable and feasible for both sides,” said Nicholas Mapa, senior economist at ING Groep NV in Manila. “Even if they float the whole long list of fundraising options, it’s still going to boil down to the best rate they can get and the possible reception they will receive.”

Global yields are rising as major central banks exit their loose monetary policies. At home, Bangko Sentral ng Pilipinas embarked on its most aggressive tightening in almost two decades to contain inflation and support the peso. It raised the benchmark rate by 175 basis points (bps) over five straight policy meetings to 4.75%, the highest since 2009.

As a result, the two-year bond yield soared 263bps this year, while 10-year yield jumped 194bps, according to Bloomberg data. This led the Treasury to reject about 354 billion pesos (RM28.49 billion) at local debt auctions, coinciding with the maiden sale of Panda bonds and the first Samurai bond issuance in eight years. — Bloomberg